1. In deciding whether a district court should have declined jurisdiction over a case under the
doctrine of comity, the abuse of discretion standard is applied. The most important issue
is whether the court has jurisdiction over the subject matter and the parties, not whether
one party filed its suit before the other.

2. A lessor of an oil and gas lease owes a duty of fair dealing to a holder of an overriding
royalty interest. A breach of this duty is shown if the lessor engaged in fraud, collusion, or
bad faith with regard to the overriding royalty interest.

3. Absent a contract provision that an overriding royalty interest in an oil and gas lease
survives a subsequent top lease, a top lease extinguishes the overriding royalty interest,
unless the holder of the overriding royalty interest proves a breach of duty of fair dealing
by showing that the lessor committed fraud, collusion, or bad faith in granting the top
lease.

MARQUARDT, J.: Petex, Inc., (Petex) appeals the district court's granting of
summary judgment to Reynolds-Rexwinkle Oil, Inc., (Reynolds-Rexwinkle) holding that
the oil and gas lease between Petex and Herman and Loretta Schippers entered on
August 30, 1993, was an extension of the lease assignment between Petex and
Reynolds-Rexwinkle entered on May 14, 1993. Reynolds-Rexwinkle cross-appeals the
denial of its motion for attorneys fees.

The district court found that on February 5, 1992, the Schippers entered into an
oil and gas lease (original lease) with Hess, Inc., (Hess). The original lease was for a
period of 1 year and contained an option to extend as long as oil and gas remained in
production on the leased property. Consideration for the lease was $1,000. The
Schippers retained a 1/8 royalty interest under the original lease. A rider provided that
the Schippers also retained an additional overriding royalty interest of 1/32 of the
remaining 7/8 interest in production from the lease property.

On February 10, 1992, Hess assigned its interest in the original lease to
Reynolds-Rexwinkle. Reynolds-Rexwinkle is a Kansas corporation, with its principal
place of business in Sedgwick County, Kansas. Prior to the expiration of the original
lease term, Reynolds-Rexwinkle exercised its option to extend the lease for 1 year to
February 5, 1994. Reynolds-Rexwinkle paid the Schippers $1,000 in consideration for
the extension.

On May 14, 1993, Reynolds-Rexwinkle assigned its interest in the original lease
to Petex, a Missouri corporation with its principal place of business located in
Springfield, Missouri. The assignment states:

"The Assignor herein hereby expressly excepts, reserves, and retains title to an undivided
1.5% of 8/8ths
of all oil, gas, casinghead gas produced, saved, and marketed from the above described land under
the
provisions of the aforesaid lease, or any extension or renewal thereof, as an
overriding royalty, free and
clear of any cost and expense of the development and operation thereof, excepting taxes
applicable to
said interest and the production therefrom." (Emphasis added.)

Petex did not drill, rework, or explore the leased property under the original lease.

On August 30, 1993, Petex entered into a new lease with the Schippers (second
lease) commencing on February 6, 1994, 1 day after the original lease expired.

The terms of both the original lease and the second lease are nearly identical.
Both leases cover the same property and the same primary parties. The Schippers
received a 1/8 royalty interest and 1/32 of 7/8 overriding royalty interest in all oil and
gas produced under both leases. The primary term of the second lease was 2 years.
The primary term of the original lease was 1 year with an option to extend for 1
additional year. Consideration for the second lease was $10 with an additional delay
rental of $800 to secure the second year of the primary term. Consideration for the
original lease was $10 and an additional $1,000 to exercise the option to extend.

The main difference is that the second lease contains no reference to Reynolds-Rexwinkle's
overriding royalty interest.

On November 18, 1994, within the first year of the second lease, Petex drilled an
oil well on the property. On December 28, 1994, Reynolds-Rexwinkle filed an affidavit
in Sedgwick County, Kansas, claiming a 1.5 percent of 8/8 overriding royalty interest
under the terms of the May 14, 1993, assignment. On or about January 6, 1995, Petex
began producing paying quantities of oil from the well.

On March 17, 1995, Reynolds-Rexwinkle sent a demand letter to Petex stating
that its overriding royalty interest must be honored. The letter requested a response
within 10 days or suit would be filed. Petex did not respond to the demand letter.

On March 27, 1995, Petex filed a petition for a declaratory judgment and reformation in
the Circuit Court of Greene County, Missouri, requesting a determination that
Reynolds-Rexwinkle had no interest in the second lease. Petex claimed the Greene
County Circuit Court had jurisdiction over Reynolds-Rexwinkle because the latter's
vice-president made an unsolicited phone call to the Petex offices in Missouri on May
14, 1994, to discuss the original lease assignment. There is no evidence in the record
that Petex proceeded with its Missouri lawsuit beyond filing the petition.

On May 16, 1995, Reynolds-Rexwinkle filed suit in the District Court of Sedgwick
County, Kansas, seeking to enforce its overriding royalty interest in the original lease
assignment. Both parties filed motions for summary judgment in the Kansas case.
Reynolds-Rexwinkle claimed the second lease should be regarded as an extension of
the original lease and it requested attorney fees. The district court granted partial
summary judgment to Reynolds-Rexwinkle, holding that the second lease is an
extension of the original lease and that "Reynolds is entitled to recover from Petex an
amount equal to all proceeds attributable to the overriding royalty interest as provided
for in the Assignment, together with interest as hereinafter provided until paid." The
district court found that no confidential relationship or fiduciary duty existed between
the parties. The district court also granted partial summary judgment to Petex denying
Reynolds-Rexwinkle's attorney fees.

Petex argues that the district court should have declined jurisdiction under the
doctrine of comity because the Circuit Court of Greene County, Missouri, had already
asserted jurisdiction over the same parties and the same dispute.

"It is well established that, when a court of competent jurisdiction acquires jurisdiction of the
subject
matter, its authority continues until the matter is finally disposed of and no court of coordinate
jurisdiction
should interfere with its action. Schaefer v. Milner, 156 Kan. 768, 775, 137 P.2d 156
(1943). Courts
should exercise comity between themselves in order to avoid expense, harassment, and
inconvenience
to the litigants. Perrenoud, 206 Kan. at 573. Under principles of comity, courts of
one state give effect
to the laws and judicial decisions of another, not as a matter of obligation, but out of deference
and
respect. Head, 242 Kan. 442, Syl. ¶2."

In Boyce, the plaintiffs filed suit in Kansas for child support immediately after
they lost an identical suit in Nebraska. 13 Kan. App. 2d at 586. After noting the rules
of comity, the court ruled that the district court did not abuse its discretion in declining
jurisdiction because disappointed plaintiffs should not be allowed to engage in forum
shopping after they have lost an identical suit in another state. 13 Kan. App. 2d at 591.

In Anderson, 214 Kan. at 392, our Supreme Court found the Butler County
District Court did not abuse its discretion when it accepted jurisdiction over a case
while related proceedings were pending before the Sedgwick County District Court. In
Anderson, the father and mother of a minor child were divorced in Minnesota and
child
custody was given to the father. The mother was given the right to take the child on a
4-week summer vacation to Wichita, Kansas. While in Kansas, the mother exceeded
the 4-week stay and filed suit in Sedgwick County seeking custody of the child. She
was granted temporary custody pending further proceedings. The mother and child
then moved to Butler County, Kansas. The father filed a K.S.A. 60-1501 action in
Butler County seeking custody of the child. The Butler County District Court found that
full faith and credit should be given to the Minnesota divorce and child custody decree
and granted custody to the father. Our Supreme Court stated:

"Under the principle of comity the Butler district court might . . . have deferred taking
action on
plaintiff's application for the writ until after the District Court of Sedgwick County had conducted
a final
hearing, but it was not required to give priority and we discern no abuse of discretion when it
proceeded
to hear its own lawsuit expeditiously. While we look with no great favor on multiple litigation or
legal
maneuvering for position on the part of litigants [citation omitted] we are aware of no legal
impediment to
Judge Benson's entertaining the habeas corpus action. The Butler district court had jurisdiction
over the
parties, over the subject matter and over the child, whether or not a suit for change of custody
was
pending elsewhere. The two actions were separate and distinct lawsuits and the question of
priority of
time in filing was immaterial." 214 Kan. at 392.

While forum shopping is not favored by Kansas courts, district courts are
afforded significant discretion in determining whether the facts constitute such a
practice. The most important issue is whether the court had jurisdiction over the
subject matter and the parties, not whether one party filed its suit before the other.

Here, there is no evidence in the record that Reynolds-Rexwinkle was
attempting to escape an adverse judgment from another jurisdiction. There is also no
evidence that the Missouri case, filed on March 27, 1995, had addressed any
substantive issues relating to the original lease assignment when Reynolds-Rexwinkle
filed suit in Kansas on May 16, 1996. These facts distinguish the present case from the
fact situation in Boyce, 13 Kan. App. 2d at 585.

Furthermore, this case involves a Kansas corporation, a Missouri corporation
doing business in Kansas, Kansas landowners, Kansas lease property, and a Kansas
oil and gas distribution company. The parties do not dispute that the Sedgwick County
District Court had both subject matter and personal jurisdiction in this case in light of
these facts. The only Missouri connection to this case was the location of Petex's
corporate headquarters and two phone calls made by a Reynolds-Rexwinkle vice-president on
May 13, 1994, to discuss the original lease assignment.

In light of the principles of comity, the district court did not abuse its discretion by
accepting jurisdiction over this case.

Petex argues summary judgment was improper in its finding that the second
lease was an extension or renewal of the original lease.

The standard of review in a case involving the district court's grant of summary
judgment is well established:

"Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and
admissions on file, together with the affidavits, if any, show that there is no genuine issue as to
any
material fact and that the moving party is entitled to judgment as a matter of law." Saliba v.
Union Pacific
R.R. Co., 264 Kan. 128, 131, 955 P.2d 1189 (1998).

Petex characterizes the second lease as neutral and unrelated to the original
lease assignment. Petex claims the original lease assignment expired on February 5,
1994, and Reynolds-Rexwinkle's overriding royalty interest expired by its own terms on
the same date.

Reynolds-Rexwinkle claims the second lease is a top lease which unfairly
"washes out" its overriding royalty interest. Specifically, Reynolds-Rexwinkle claims
Petex owes it a duty of fair dealing with regard to the overriding royalty interest in the
assignment. It claims the second lease breached this duty. As such, it argues that by
operation of law the second lease should be deemed an extension or renewal of the
assignment. Reynolds-Rexwinkle argues that the judgment below should be affirmed.

An "overriding royalty interest" is

"a royalty carved out of the working interest created by an oil and gas lease. Most frequently
it is created
subsequent to a lease by outright grant or by a reservation in the assignment of the operating
rights. It is
an interest in oil and gas produced at the surface, free of the expense of production and its
outstanding
characteristic is that its duration is limited by the duration of the lease under which it is created."
Campbell v. Nako Corporation, 195 Kan. 66, 70, 402 P.2d 771 (1965).

A "top lease" is "[a] lease granted by the landowner during the existence of a
recorded mineral lease which is to become effective if and when the existing lease
expires or is terminated." 8 Williams and Meyers, Oil and Gas Law, Manual of Terms
1115 (1997).

"In the oil and gas vernacular to toplease is to secure a lease on land covered by an
existing
lease to the end that the toplease will be effective after the expiration of the existing lease and the
interest of one or more lessees thereby eliminated. Topleasing has the same invidious
characteristics as
claim jumping." (Emphasis added.) Frankfort Oil Company v. Snakard, 279
F.2d 436, 445, n.23 (10th
Cir. 1960), cert. denied, 364 U.S. 920 (1960).

A "washout" is the "[e]limination of an overriding royalty or other share of the
working interest by the surrender of a lease by a sublessee or assignee and
subsequent reacquisition of a lease on the same land free of such interest." 8 Williams
and Meyers, Oil and Gas Law, Manual of Terms 1162 (1997).

Two Kansas cases dealing with the issue of whether the second lease is a
renewal or extension of the original lease assignment are Campbell, 195 Kan. 66, and
Howell v. Cooperative Refinery Ass'n, 176 Kan. 572, 271 P.2d 271 (1954). Both of
these cases contain facts that are not present in the instant case.

In Howell, our Supreme Court examined a dispute arising from a contract
between a geologist and an oil drilling firm. The geologist procured oil and gas leases
in his own name and then leased them to the firm reserving an overriding royalty
interest for himself in any extension or renewal of the lease. Almost 2 months after
expiration of the leases, the firm negotiated a new lease without the geologist's
overriding royalty interest. The geologist sued. Our Supreme Court held that the
overriding royalty interest applied to the second lease even though the second lease
was entered after the original lease expired because of the confidential relationship
between the parties. 176 Kan. at 578. The court observed that the contract created "a
form of joint interest and joint ownership" between the parties which imposed a duty to
protect their respective interests under the contract. 176 Kan. at 577. This special
duty provided the court with the ability to enforce the renewal and extension provision
even though the contract had technically expired.

Campbell involved an oil and gas lease between the Campbells and the Nako
Corporation with the Klippels owning a 1/16 of 7/8 overriding royalty interest in the
lease. Without the Klippels' knowledge, the Campbells colluded with a faction of Nako
which had taken control of the company and obtained a lease forfeiture by default
against the Klippels. Campbell and Nako then negotiated the lease without the
Klippels' overriding royalty interest. The Klippels sued to enforce their overriding
royalty interest. Our Supreme Court noted:

"Most of the decided cases touching holders of an overriding royalty have arisen in
controversies
between the lessee and the overriding royalty holder, and here there seems clearly emerging a duty
of
fair dealing required on the part of the lessee (See 2 Williams and Meyers, Oil and Gas Law,
§ 420.2) to
which doctrine this court has definitely inclined (Howell v. Cooperative Refinery Ass'n., 176 Kan.
572,
271 P.2d 271).

. . . .

"Thus it would seem that the particular circumstances under which a lease is terminated
and the
presence or absence of bad faith does play a part in determining the duration of the overriding
royalty.
This would appear right and just as otherwise the holder is completely at the mercy of any
collusive
overreaching on the part of the owners of the other interests and, though having bargained in
good faith
for an interest in oil produced during the term of the lease, the law would be powerless to protect
him
from an unjust cancellation of that lease. The granting and reserving of overriding royalties is
well known
in the oil industry and the practice can and does serve both the landowners and the operating
lessees'
interests in the procuring and developing of leases. There is no reason why such holders should
not
have the ordinary protection of the law from collusion and fraud." 195 Kan. at 73.

The court held:

"We hold that on bona fide forfeiture or surrender of a lease, the overriding royalty
created
thereunder falls with the lease. But if such forfeiture or surrender is obtained by fraud or
collusion
between the landowner and the lessee for the purpose of avoiding or cutting out the overriding
royalty
interest holder and the substitution of a new lease directly to the lessee, then a court of equity may
grant
relief to the overriding royalty holder against such forfeiture or surrender." 195 Kan. at 75.

Under Campbell and Howell, a lessor owes a duty of fair dealing
to a holder of
an overriding royalty interest. A breach of this duty is shown if the lessor engaged in
fraud, collusion, or bad faith with regard to the overriding royalty interest.

While the fact situation in Campbell does not involve an original lease
assignment containing a renewal or extension clause, its holding appears equally
applicable to such cases. Requiring holders of overriding royalty interests to show
fraud, collusion, or bad faith in order to prove a breach of fair dealing grants both the
lessor and the holder of the overriding royalty interest legal protection. See e.g.,
Drilling, Inc. v. Warren, 185 Kan. 29, 35, 340 P.2d 919 (1959) (holding overriding
royalty interest and extension clause terminated when the underlying lease terminated
because oil exploration failed).

On appeal, Petex claims that Howell, 176 Kan. 572, requires that a
confidential
or fiduciary relationship exist before the duty of fair dealing is triggered. Such a rule
would contradict the general principle stated in Campbell, 195 Kan. at 73. Petex is
correct, however, when it points out that a breach of the duty of fair dealing requires a
showing of fraud, collusion, or bad faith. Campbell, 195 Kan. at 75. Such a
showing is
a question of fact. See e.g., In re Estate of Hessenflow, 21 Kan. App. 2d
761, 774, 909
P.2d 662 (1995), rev. denied 259 Kan. 928 (1996) (fraud is a question of fact);
Warren,
185 Kan. at 32 (trial court instructed that bad faith is a question of fact).

Reynolds-Rexwinkle raised a material issue of a duty of fair dealing and bad
faith which was not resolved in the district court's decision. Such a dispute is material
because the presence of one of these three factors would show that Petex breached its
duty of fair dealing, which is required to conclude that the top lease is an extension of
the original lease. The district court found that there was no confidential relationship
between the parties in the instant case; therefore, the issues involved where there is a
confidential relationship are not before this court. We hold that absent a contract
provision that an overriding royalty interest in an oil and gas lease survives a
subsequent top lease, a top lease extinguishes the overriding royalty interest, unless
the holder of the overriding royalty interest proves a breach of duty of fair dealing by
showing that the lessor committed fraud, collusion, or bad faith in granting the top
lease. The district court erred in granting summary judgment when it failed to require
Reynolds-Rexwinkle to prove that Petex's actions were fraudulent, collusive, or in bad
faith.

The district court assessed the costs of the action against Petex pursuant to
K.S.A. 60-2002. It denied Reynolds-Rexwinkle's motion for attorney fees under K.S.A.
55-1617 because the case presented "a valid legal argument" as to the parties'
respective rights and responsibilities. The court awarded prejudgment interest to
Reynolds-Rexwinkle under K.S.A. 16-201.

Reynolds-Rexwinkle claims that under K.S.A. 55-1614 et. seq., the Kansas
Interest on Proceeds from Production Act, it is a "payor" to whom Petex as "payee"
owes a sum equal to the amount of its overriding royalty interest in the total oil
production generated under the top lease. Furthermore, because Reynolds-Rexwinkle
is entitled to compensation from Petex, it argues it is also entitled to attorney fees
under K.S.A. 55-1617, which states: "The prevailing party in a proceeding brought
pursuant to this act on which a judgment is rendered may recover court costs and
reasonable attorney fees at the discretion of the court."

Because the district court erred in granting summary judgment in this case, any
resolution of the matter of court costs and attorney fees is premature. The district
court's error requires that its order assessing court costs and attorney fees be vacated
and the matter reheard at the close of further proceedings if the parties raise the issue
again.

Accordingly, we reverse the grant of summary judgment and remand the case to
the district court for further proceedings consistent with the analysis set forth above.